The New Zealand dollar rose to a new post-float record on a trade-weighted basis after the Reserve Bank signalled a steeper track of rate hikes after lifting the official cash rate today and as Australian employment grew at its fastest pace in more than two decades.
The trade-weighted index rose as high as 80.13, and was at 80.03 at 5pm in Wellington from 79.49 yesterday. The kiwi rose to a nine-and-a-half month high 85.66 US cents, trading at 85.60 cents at 5pm 84.67 cents at 8am, when it was unchanged from yesterday.
RBNZ governor Graeme Wheeler lifted the OCR a quarter-point to 2.75 percent today, and said he will probably hike a further 1 to 1.5 percentage points this year as he looks to head off the threat of looming inflation as economic growth accelerates. While markets were prepared for the rate hike, the path of the 90-day bank bill rate, seen as a proxy for the key rate, indicated rates will rise above 5 percent in 2017, about half a percentage point more than what traders were expecting.
"The market has already bought into the idea of five hikes this year: that's priced in. But they haven't bought into the OCR going to 5 percent-plus yet," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The kiwi can go up a bit more."
Westpac's Speizer said the local currency could rise to 86 US cents, "which is probably where it should stick" barring any international shocks.
The Reserve Bank now sees the kiwi dollar staying stronger for longer as New Zealand's 40-year high terms of trade and growing economic momentum underpin investor support for the currency. Wheeler told politicians today much of the future interest rate hikes has been priced in by the market, and he doesn't anticipate a "significant" lift in the kiwi as a result of the tightening cycle.
The local currency also got a boost from Australian employment figures showing full-time payrolls grew 80,500 in February, the biggest increase since August 1991, according to the Australian Bureau of Statistics. The Australian dollar rose to 90.64 US cents at 5pm in Wellington from 89.96 cents before the release. The kiwi was little changed at 94.39 Australian cents from 94.45 cents yesterday.
The kiwi rose to 87.96 yen at 5pm in Wellington from 87.21 yen yesterday, and gained to 61.57 euro cents from 61.11 cents. It advanced to 51.47 British pence from 50.93 pence yesterday.